Figure 18-1

-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Question

Figure 18-1
 
-Refer to Figure 18-1.Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued.Using the static AD-AS model in the figure above,this would be depicted as a movement from

Quizplus · Accepted Answer

In the static AD-AS model, a short-run equilibrium above potential GDP occurs when the aggregate demand curve intersects the short-run aggregate supply curve to the right of the long-run aggregate supply curve. This point is represented by point C in the figure. If no policy is pursued, the economy would remain at this point and there would be no movement from any other points in the diagram. Therefore, the correct answer is C.

Figure 18-1 -Refer to Figure 18-1.Suppose the Economy Is in Short-Run Equilibrium